Overexpression of Eph transcripts has been observed in some carcinomas of the colon, lung, and liver. Recent studies have begun to identify ligands that can bind or activate members of the Eph family of receptor tyrosine kinases. These ligands described thus far are all membrane bound. Functional roles for the receptor-ligand interactions are beginning to be determined and suggest that they participate in axon bundling and guidance. We have isolated a cDNA encoding a putative ligand, termed Xlerk (Xenopus Ligand for Eph Receptor Kinases), that shows close homology with murine Lerk2 and has a very highly conserved intracellular domain. While there was some overlap in the expression pattern of the Xek (Xenopus Elk-like Kinase) receptor when compared to Xlerk, there also appears to be significant differences. Xlerk transcripts were observed in the olfactory placode, olfactory bulb, developing somites and innervations of the heart and gut (myenteric plexus). We have found that ectopic expression of XLerk, a transmembrane ligand, causes dissociation of Xenopus embryonic blastomeres by the mid-blastula transition. Moreover, a mutant which lacks the extracellular receptor binding domain can induce this phenotype. The carboxy terminal 19 amino acids of the cytoplasmic domain of XLerk are necessary, but not sufficient to induce cellular dissociation. Basic fibroblast growth factor (bFGF), but not activin, can rescue both the loss of cell adhesion and mesoderm induction in ectodermal explants expressing XLerk. Collectively, these results show that the cytoplasmic domain of XLerk has a signaling function that is important for cell adhesion and further, FGF signaling modulates this function.